El Salvador Creates Bitcoin, Blockchain Cluster to Nurture First Crypto Unicorn

The project aims to foment the growth of crypto startups and medium-sized enterprises installed in the country by facilitating their access to venture capital

A customer pays with the government wallet Chivo Wallet at a cellphone repair shop in San Salvador.
July 08, 2022 | 02:30 PM
Reading time: 3 min.

San Salvador — El Salvador is setting up a Bitcoin and Blockchain Cluster, with which it aspires to conceive its first crypto unicorn, during its first five years of operation.

The scheme will be constituted under the concept of the so-called ‘triple helix’, a project with a country vision that involves joint work between the government, academia and the private sector, according to Mónica Taher, director of technological and international economic affairs of the Ministry of Trade and Investment.

The initiative arises as the natural evolution of a ‘robust and vibrant’ community of crypto companies that arrived in the country attracted by the Bitcoin Law, in force since September 2021, she said.

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In the cluster, the government’s role will be to bring venture capitalists and venture capital funds closer to local entrepreneurs to facilitate funding, both for startups and medium-sized companies.

“It is already in the making, we are planning to formalize it and launch it publicly,” Taher said Thursday during the Blockchain Summit LatAm 2022, held in Panama City and organized by Blockchain Summit LatAm of Chile and the Chamber of Digital Commerce and Blockchain in Panama.

“God willing, in the first three to five years following the launch of this cluster El Salvador will have its first unicorn. That’s one of our goals,” Taher said.

The term ‘unicorn’ refers to a company that reaches a valuation of $1 billion.

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There are more than 40 unicorns in Latin America, concentrated mainly in Brazil and Mexico, according to a report by Endeavor and Glisco Partners fund.

The Latin American startups that achieve this milestone belong mainly to the fields of fintech, e-commerce, transportation and logistics, technology for the real estate sector (proptech) and video games, among others.

It takes on average seven years for a company to enter this select group in Latin America, but some make it in record time of between one and three years.

On average, each Latin American unicorn reaches a valuation of $1.7 billion, reports revenues of around $148 million annually, and generates around 2,156 jobs.

More bitcoin education

The Bitcoin Law has yet to celebrate its first year since enactment, and it is therefore still too early to evaluate its true effects, both in the adoption of its use and as a tool for attracting investment, Taher said.

“Maybe at this moment, less than a year after the law was enacted, we cannot measure the impact of what it has meant, but maybe in five years we will be able to say in terms of education we are here; in terms of the impact of private enterprise, we are here,” she said.

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Taher tweeted on Thursday that financial inclusion for the unbanked is the country’s goal, and that “we will only achieve the massive adoption of Bitcoin versus the traditional and predatory financial system through education, a task of the ‘triple helix’: government, academia and the private sector”.

However, the country is already seeing the first benefits of the Bitcoin Law, as it is already on investors’ maps, she said.

Some companies, such as Bitrefill, have even installed a hub for Latin America in the country, and which was “unthinkable” a few years ago, she added.

“Usually markets such as Mexico, Brazil, Argentina and in some cases Panama, due to the tax benefits they offer, are the targets for multinationals to become hubs for Latin America,” Taher said.

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Several surveys, such as the one carried out by NBER-Cid Gallup, or by the Chamber of Commerce and Industry of El Salvador, indicate a decline in the use of bitcoin in the Central American country this year, after the government’s offering of a $30 bonus for downloading state bitcoin wallet Chivo Wallet.

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The technological base already exists, as the nation of 6.5 million people has more than 9.9 million cell phone lines, 4.1 million of them with broadband Internet, and a cellular network that reaches 94% of the population, according to 2020 figures from the country’s electricity and telecommunications authority SIGET.

Taher pointed out that greater crypto adoption requires a promoted educational effort, especially in rural areas.

“We are the country in Central America with the highest penetration of smartphone adoption, usually a person has two smartphones. it is very likely that this person knows how to download an application, but does not necessarily know how to make a transaction with bitcoin,” she said.

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-- Daniel Salazar Castellanos also contributed to this story

Translated from the Spanish by Adam Critchley